U.S. bankruptcy judge allows Detroit water shutoffs to continue

DETROIT (Reuters) - U.S. Bankruptcy Judge Steven Rhodes ruled on Monday that Detroit can continue shutting off water service to non-paying customers, saying his court does not have jurisdiction over the issue and that suspending disconnections for six months could hurt the city's finances.

"Detroit cannot afford any revenue slippages," the judge said, before resuming his ongoing hearing on Detroit's plan to exit the biggest-ever municipal bankruptcy.

"As it prepares to show the court its plan is feasible... the last thing it needs is this hit to its revenues," he said, adding there was a strong correlation between disconnections and the city's collections of delinquent bills.

Detroit's bankruptcy plan includes a $4.5 million water affordability fund and a cap on rate increases. It also creates a regional water authority, which Rhodes said could be put in jeopardy by a revenue drop from unpaid bills.

Residents and political activists had asked Rhodes for a six-month restraining order against the shutoffs. Last week, during a break in the bankruptcy hearing, Rhodes heard arguments about the financial and social impacts of cutting off the water of hundreds of homes each day.

There had been questions over whether or not the judge could issue an order since his role is to decide if Detroit's bankruptcy plan is fair and feasible, not to oversee city operations. On Monday, he said the bankruptcy code does not allow a federal court to "interfere with the choices a municipality makes in the services it will provide."

This summer Detroit began what some witnesses last week described as an "aggressive campaign" to pare down $90 million in overdue bills. After 19,000 homes lost water access, people from across the country sent gallon jugs to the city and residents protested in the streets.

Mayor Mike Duggan in August issued a month-long moratorium on shutoffs and implemented a plan to help low-income customers pay their bills that Rhodes called "bold, commendable and necessarily aggressive."

Still, the plaintiffs said current water disconnections, which have run at a rate of around 350 per day since the moratorium ended, put public health at risk, hurt seniors on fixed incomes, and disrupted families with children.

They also said poor customers needed a more affordable plan than Duggan's, adding that the injunction would fall during freezing-cold winter months when the department already refrains from disconnecting pipes.

Without collecting on delinquent bill payers, the department would have to increase charges, its chief financial officer testified, adding it relies on monthly billing almost exclusively for revenue. At the same time, the department is currently confronting $42 million in other bad debt.

The shutoffs accomplished the city's goal of increasing collections, said Darryl Latimer, the customer service chief of Detroit's Department of Water and Sewerage Department.

During June and July, the peak months of the shutoffs, the department collected $1.7 million in money owed. In August, during the moratorium, collections were only $200,000. At the peak, the department disconnected around 900 homes a day, Latimer said.